Hines overcame a difficult fundraising environment to close its third European value fund above target, with €1.6 bn of equity commitments.
The global investment manager’s Paul White, fund manager of Hines European Real Estate Partners III, said ‘it had not been a walk in the park’, but despite challenging economic conditions, a further €620 mln of capital was committed in 2023.
‘I have pitched to about 250 investors, resulting in more reluctant negative outcomes than usual’, he said. ‘Because at the level above them, there is currently no allocation to invest at all, let alone in real estate.’
At final close, the total number of investors was 35, which White said was a well-balanced mix of existing and new investors from all over the world.
The fund targets 12% - 14% returns and 60% leverage and can invest in the EU, UK and Norway. It can also take on development for the first time in this fund series.
Alex Knapp, Hines’ chief investment officer for Europe, said the dramatic repricing of real estate and change in the cost of capital as a result of high inflation and high interest rates meant approaches to investing has changed. After a period of being all about particular sectors, there was a strong focus on ‘a capital stack approach’, as more opportunities come through sellers with loan maturity events, he said.
This will be reflected in the new fund’s acquisitions. White observed: ‘We hope to buy low and sell high in three to five years time.’
He added: ‘What we buy will be driven by a focus on fundamentals and particularly where we see unmet demand, where rents will rise. That varies from region to region and city to city.’
For HEREP III, White’s team is prioritising three key sectors: purpose-built student accommodation, distribution logistics (including developing new product), and highly sustainable office spaces in prime locations.
The first four investments have been acquired, plus there is a self storage acquisition in the UK in the works. That means that circa €300 mln, or almost 20% of the equity, has been allocated. The four first are: a site in Barcelona permitted for student accommodation; two office investments, one of which is Film House, bought from WeWork for c£135 mln in the West End in London; and a German logistics development site.
‘The thread running through everything we invest in will be the highest aspiration for sustainability’, White explained. ‘It is not easy to transition buildings... but we can control this part. Whereas investing into cycles is outside our control. We need active value creation and then even if the market were not to recover the fund should perform to targets.’
Hines’ 866-strong team managed €27.6 bn of European real estate from 17 offices, as of 30 June 2023. Knapp said there are advanced plans to expand the firm’s representation in the Nordics where there are currently 16 people working from Copenhagen.
The HEREP fund series has been renamed from its former branding as the Hines European Value Funds (HEVF).
